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Professionals - Penalties. Kitmitto v. Ontario (Securities Commission)
In Kitmitto v. Ontario (Securities Commission) (Div Court, 2024) the Divisional Court considers (and dismissed) related appeals from two Capital Markets Tribunal (CMT) decisions, one respecting 'merits' and one respecting 'sanctions' [under Securities Act (SA), s.10(1)], here addressing SA 76 "which prohibits insider trading and tipping" ['Part XVIII - Continuous Disclosure ' ('Trading where undisclosed change' and 'Tipping')].
Here the court considers an appeal against tribunal-assessed securities 'penalties' [para 169] - though also referred to as 'sanctions' by the tribunal [para 164] - while holding that they are not 'punishments' [para 179] [SS: a distinction that I am not comfortable with]:[3] In the “Sanctions Decision” dated January 20, 2023 (reported at 2023 ONCMT 4), the Tribunal imposed various sanctions, including market participation bans, administrative monetary penalties, disgorgement of profits, and costs.
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[5] In the alternative, Mr. Kitmitto and Mr. Goss submit that the Tribunal erred in the Sanctions Decision, including by imposing punitive sanctions that were not proportionate to their conduct and that did not properly take into account mitigating factors applicable to them individually.
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[177] The Supreme Court of Canada has recognized that the Tribunal has “very wide discretion” to intervene in the public interest, including when imposing sanctions designed to prevent likely future harm to Ontario’s capital markets: Committee for the Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37, [2001] 2 S.C.R. 132, at paras. 39-45; see also Cartaway Resources Corp (Re), 2004 SCC 26, [2004] 1 S.C.R. 672, at paras. 45, 63. The circumstances in which an appellate court may interfere with the exercise of that discretion are very limited. The weight given to any individual sanctioning factor will vary from case to case and falls within the Tribunal’s discretion. No one factor should be considered in isolation “because to do so would skew the textured and nuanced evaluation conducted by the Commission in crafting an order in the public interest”: Cartaway, at para. 64.
[178] The arguments of Mr. Kitmitto and Mr. Goss relating to penalty and costs do not meet the high bar for appellate intervention. In large measure, they repeat the submissions they made before the Tribunal at the sanctions hearing, which the Tribunal considered and rejected after due consideration.
[179] I do not agree that the penalties the Tribunal imposed are properly characterized as punitive. The Tribunal, at para. 6, correctly enunciated its preventive (rather than punitive) role when imposing sanctions, noting that its role “is not to punish past conduct, but to restrain “future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient”, citing Mithras Management Ltd (Re) (1990), 13 OSCB 1600, at p. 1611. The Tribunal, at para. 7, also recognized that the sanctions must be appropriate and proportionate to the circumstances of each respondent, emphasizing again that punishment is not a permissible goal of sanctions: see Azeff (Sanctions), at paras. 7, 10. After careful consideration of the circumstances of the culpable defending parties, both collectively and individually, the Tribunal imposed the sanctions outlined previously and explained the reasons for doing so. I see nothing in the Tribunal’s analysis to suggested that they erred in principle in doing so.
[180] Previous case law has recognized that participation in the capital markets is a privilege, not a right: see Erikson v. Ontario (Securities Commission) (2003), 169 O.A.C. 80 (S.C.), at para. 55, citing Manning v. Ontario (Securities Commission) (1996), 94 O.A.C. 15 (Div. Ct.), at paras. 10-11. Significant market bans, including director and officer bans, are well established market protective measures that have been imposed, and upheld on appeal, in other insider tipping and trading cases: see Azeff (Sanctions)[4], at paras. 9, 21, 28, 40, 42; Agueci (Sanctions), at para. 87, aff’d 2016 ONSC 6559, 133 O.R. (3d) 81 (Div. Ct.). The Tribunal, at para. 25, amply addressed and justified director and officer bans in this case, having considered Mr. Goss’ submissions to the contrary. I see no basis for appellate intervention.
[181] I also see no basis for concluding that the administrative penalties were punitive. As the Court of Appeal and this court have repeatedly recognized, insider tipping and trading are serious breaches of securities laws that erode public confidence in the capital markets: see Finkelstein, at paras. 22-25; Fiorillo v Ontario (Securities Commission), 2016 ONSC 6559, 133 O.R. (3d) 81 (Div. Ct), at para. 289. In Rowan v. Ontario (Securities Commission), 2012 ONCA 208, 110 O.R. (3d) 492, at para. 49, the Court of Appeal stated that administrative penalties of up to $1 million per infraction (the maximum amount that the Tribunal may impose under s. 127(1)9 of the Securities Act) were entirely in keeping with the OSC’s mandate to regulate the capital markets where (as here) large sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules. The court recognized that an administrative penalty must not be viewed as “a ‘cost of doing business’ or a ‘licencing fee’ for unscrupulous market participants”: Rowan, at para. 49.
[182] I also see no error in the Tribunal’s methodology in calculating the administrative penalties. As the Tribunal explained at para. 27-28, the $200,000 per breach baseline was determined with due consideration of the seriousness of the misconduct, precedents set by past cases (in particular Azeff (Sanctions), at para. 33, and Agueci (Sanctions), at paras. 38, 40, 45, which respectively ordered $150,000 and $250,000 per illegal tip or trade), and the significant passage of time since those earlier (2015) decisions. The Tribunal, at para. 29-30, then assessed whether any variation from the per-breach benchmark was appropriate for each individual, with due consideration to mitigating and aggravating factors.
[183] As well, I am not persuaded by Mr. Kitmitto’s submission that the sanctions imposed on him were out of line with those imposed in previous cases, notably Agueci (Sanctions) and Cheng (Sanctions). In those cases, there were distinguishing factors that justified a different result, in the exercise of the Tribunal’s discretion: see Agueci (Sanctions), at para. 29; Cheng (Sanctions), at paras. 7, 10. For example, Mr. Cheng acknowledged and admitted his wrongful conduct, cooperated with OSC staff’s investigation and agreed to testify as a witness. In determining penalty, it would be an error in principle to consider as an aggravating factor Mr. Kitmitto’s failure to admit his wrongdoing and cooperate with OSC staff, since to do so would be inconsistent with his right of make full answer and defence: see Sanctions Decision, at para. 15. However, the fact remains that it was open to the panel in Cheng (Sanctions) to consider Mr. Cheng’s admission and cooperation as a mitigating factor in determining penalty, a consideration that was not open to the Tribunal when determining the appropriate sanction for Mr. Kitmitto.
[184] More generally, I do not agree that the Tribunal erred by failing to consider mitigating factors and individual circumstances for sanctions purposes. The Tribunal explicitly considered the facts and circumstances of each offending party, including those highlighted by Mr. Kitmitto and Mr Goss. The Tribunal rejected certain facts and arguments as mitigating in all the circumstances of the case, including after giving due consideration to the factors militating in favour of significant sanctions: see Sanctions Decision, at paras. 8, 17, 30, 33-40 (re Mr. Kitmitto) and 60-71 (re Mr. Goss). It was within the Tribunal’s discretion to do so. Mr. Kitmitto and Mr. Goss have identified no reversible errors of principle associated with the Tribunal’s exercise of its discretion, nor are the penalties imposed clearly unfit. . Kitmitto v. Ontario (Securities Commission)
In Kitmitto v. Ontario (Securities Commission) (Div Court, 2024) the Divisional Court considers (and dismissed) related appeals from two Capital Markets Tribunal (CMT) decisions, one respecting 'merits' and one respecting 'sanctions' [under Securities Act (SA), s.10(1)], here addressing SA 76 "which prohibits insider trading and tipping" ['Part XVIII - Continuous Disclosure ' ('Trading where undisclosed change' and 'Tipping')].
Here the court cites an appellate SOR for administrative penalty decisions, here in a securities context but by citing some related RHPA law:[168] The standard of review that applies on appeal of a tribunal’s penalty decision or costs award is one of considerable deference.
[169] An appeal court will interfere with a tribunal’s penalty decision only if the tribunal made an error in principle or the penalty is clearly unfit: College of Physicians and Surgeons of Ontario v. Peirovy, 2018 ONCA 420, 143 O.R. (3d) 596, at para. 38. A penalty will be clearly unfit where the decision does not fall within “a range of possible, acceptable outcomes which are defensible in respect of the facts and law”: Peirovy, at para. 38, citing Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 47. . Mirza et al. v. Law Society of Ontario
In Mirza et al. v. Law Society of Ontario (Div Court, 2023) the Divisional Court considered a JR by candidates for "barristers and solicitors licensing exams" where 'cheating keys' had been leaked. Subsequently:[4] ... after receiving written submissions but without holding a hearing, the LSO licensing department concluded that the Applicants had engaged in “prohibited actions” by making “a false or misleading representation or declaration.” The LSO decided to void the Applicants’ exam results and, for all Applicants other than Ms. Subramaniam, their registration in the licensing process. The LSO further disqualified the Applicants, for one year, from re-applying to the licensing process. In these quotes, the court conducts the 'importance of the decision' portion of the Baker procedural fairness consideration of the LSO's applying punitive administrative sanctions, and their associated failure to hold an hearing:b. Factor three - the importance of the decision to the affected individual
[42] The LSO did not deny the decisions were important to the Applicants, although it submitted that the Applicants were overstating the impact. There can be little dispute that the consequences of the LSO’s decisions were significant. The voiding of the registration meant the Applicants (other than Ms. Subramaniam) were required to wait a year (for most, until March 2023), before re-registering. At that point, they would have to repeat their experiential training (their articles or the Law Practice Program) and re-write their exams, including any that were successfully completed before November 2021. Although most or all the Applicants had received exemptions from the experiential component because of prior experience (for example, practising as a lawyer in a different country), they would be required to re-apply for the exemption.
[43] There were also wider-ranging consequences. The LSO considered the outcome to be a “regulatory sanction” such that the Applicant was required to disclose it in any re-registration application. The LSO then reserved the right to conduct a further investigation into the Applicant’s good character in the re-registration process and refer the Applicant for a good conduct hearing at the Tribunal. In other words, after waiting a year and then completing the registration process for a second time, the Applicants could still face a hearing on the very issues that had led to the voiding of their registration.
[44] Counsel for the LSO submitted that the Applicants had simply suffered a “setback” on the path to becoming licensed. In our view, a more apt description would be that the Applicants suffered a permanent stain on their reputation. The LSO highlighted that it would share the decision with legal regulators across Canada. Similarly, the finding of a regulatory sanction could prevent the Applicants from successfully applying to a different regulated profession where this would need to be disclosed. A law firm interested in hiring an Applicant could ask questions that would elicit this history and then be dissuaded from hiring the lawyer or paralegal.
[45] The substantial and wide-ranging consequences suffered by the Applicants weigh in favour of a high level of procedural fairness. . Mirza et al. v. Law Society of Ontario
In Mirza et al. v. Law Society of Ontario (Div Court, 2023) the Divisional Court considered a JR by candidates for "barristers and solicitors licensing exams" where 'cheating keys' had been leaked. Subsequently:[4] ... after receiving written submissions but without holding a hearing, the LSO licensing department concluded that the Applicants had engaged in “prohibited actions” by making “a false or misleading representation or declaration.” The LSO decided to void the Applicants’ exam results and, for all Applicants other than Ms. Subramaniam, their registration in the licensing process. The LSO further disqualified the Applicants, for one year, from re-applying to the licensing process. In these quotes, the court conducts the 'statutory scheme' portion of the Baker procedural fairness consideration of the LSO's applying punitive administrative sanctions, and their associated failure to hold an hearing:[10] For the reasons that follow, we find that it was reasonable and did not violate procedural fairness for the LSO to void the Applicants’ exam results as an administrative measure. However, the further sanctions imposed by the LSO substantially impacted the Applicants to the point of being punitive. It was a violation of procedural fairness to impose that level of consequence without holding a hearing or reaching a determination that the Applicants had engaged in intentional misconduct. On the issue of remedy, we quash the LSO’s decisions other than the voiding of exam results and remit these matters to the LSO to determine next steps in accordance with these reasons.
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a. Factors one and two - Statutory context and whether the process followed a judicial model
[23] Our analysis begins with a discussion of whether the process followed a judicial model, combined with a discussion of the statutory context, since those factors are intertwined in this case.
[24] The LSO submits that the process was not quasi-judicial, nor did it need to be since there was no finding that the Applicants were not of good character. We agree that the process followed was not quasi-judicial, but, in view of the statutory context, it should have been.
[25] Section 27 of the Law Society Act, R.S.O. 1990, c. L.8 (the “Act”) requires that a hearing be held before an application for a licence is refused because the applicant is not “of good character.” Specifically, s. 27(2) sets out the good character requirement, providing: “It is a requirement for the issuance of every licence under this Act that the applicant be of good character.” Subsection 27(4) requires that a hearing be held before an application for a licence may be refused: “An application for a licence may be refused only after a hearing by the Hearing Division, on referral of the matter by the Society to the Tribunal.”
[26] This provision supports the Applicants’ entitlement to a hearing before the LSO was authorized to void their registration. Although the LSO did not directly “refuse” their applications for a licence, it voided their registration after they had applied for a licence and completed most of the steps in the application process, including the experiential training, culminating in having written their barristers and solicitors’ exams. Caselaw from the Tribunal confirms that when the LSO does not accept that a candidate is of good character, a hearing must be held: Law Society of Upper Canada v. Sharon Ellen Shore, 2008 ONLSAP 6, [2008] L.S.D.D. No. 41, at para. 7, aff’d (2009), 2009 CanLII 18300 (ON SCDC), 96 O.R. (3d) 450 (Div. Ct.).
[27] We accept the Applicants’ contention that the reason the LSO voided their registration in the licencing process was due to a concern about their “good character.” The LSO denies this, stating that it did not assess the Applicants’ good character during what was an administrative process and that the by-laws it relied on did not require a determination of knowledge or intention.
[28] There are several problems with this argument. First, although the LSO’s review decision stated that the licensing department had not assessed the Applicants’ good character, this was a reversal of the LSO’s position at the outset of the investigation. The LSO retained outside counsel to assist with the investigations. In an initial letter to each of the Applicants, counsel wrote that “the LSO has authorized an investigation into your character pursuant to s. 27(2) of the [Act] and by-law 4.”
[29] In the licensing department’s initial decision letter dated July 14, 2022, which concluded that the Applicants had engaged in “prohibited actions” the LSO explained that By-law 4 “provides that a licensing applicant’s good character is one of the requirements for the issuance of a licence under the Act.” At the conclusion of that letter, the LSO stated that, among other outcomes, it was considering referring the candidate’s application to the Hearing Division of the Law Society Tribunal for a hearing into whether they are of good character under s. 27(4).
[30] Second, the LSO relied specifically on two provisions of By-law 4, both of which authorize it to take steps because of a “false or misleading representation or declaration.” Subsection 14(2) of By-law 4 permits the LSO to void a licensing examination. It provides:14(2) A person who makes any false or misleading representation or declaration on or in connection with an examination application, by commission or omission, is deemed thereafter not to meet, and not to have met, the requirements for taking a licensing examination and, subject to subsection (3), the successful completion of any licensing examination taken by the person is deemed thereafter to be void. [31] Subsection 18(2) of By-law 4 permits the LSO to void a candidate’s registration for licensure as follows:A person who makes any false or misleading representation or declaration on or in connection with registration, by commission or omission, is deemed thereafter not to meet, and not to have met, the requirements for registration, the person’s registration is deemed thereafter to be void, the successful completion of any licensing examination taken by the person is deemed thereafter to be void, the successful completion of any professional conduct course conducted by the Society taken by the person is deemed thereafter to be void and any service under articles of clerkship is deemed thereafter to be void. [32] While the LSO claims it can make findings of a “false or misleading representation or declaration” without finding willful conduct, in its July 14, 2022 decision letter, it relied on “licensing dishonesty” in its Licensing Process Policies, to justify the finding that the Applicants had engaged in prohibited actions. Those policies prohibit candidates from engaging in “conduct unbecoming a candidate” including “licensing dishonesty.” Licensing dishonesty means “engaging in any form of dishonesty, including fraud, cheating, or misrepresentation”: Licensing Process Policies, s.13.11. It includes being in possession of or using unauthorized information or materials prior to or during a licensing examination. While the definition does not expressly say the misconduct must be willful, the overall context of engaging in “dishonesty” impliesadvertence.
[33] The case law from the Law Society Tribunal similarly concludes that advertence is necessary, at least when the LSO is contemplating disqualifying an applicant from obtaining a licence. In Howard Steven Levenson v. Law Society of Upper Canada, 2009 ONLSHP 98, a hearing panel of the Tribunal considered s. 8(2) of By-law 4, which also includes a deeming provision but in relation to a false or misleading representation in connection with an application for a licence. The hearing panel noted s. 8(2) was similar to the deeming provisions in ss. 14 and 18. At paras. 92-93, the hearing panel found the deeming provision could not be interpreted to capture inadvertent conduct:In our view, s. 8(2) cannot be interpreted so as to automatically disqualify an applicant from being issued a licence when his or her application is, in some respect, inaccurate, regardless of whether the inaccuracy is inadvertent. That would be fundamentally unfair in the extreme. Nor does its plain meaning compel such an interpretation.
This subsection is designed to capture those situations in which an applicant is deliberately misleading in his or her application or in connection with it. [34] In Law Society of Upper Canada v. Robert Allen Stewart, 2012 ONLSAP 30, a Tribunal appeal panel agreed with the interpretation in Levenson saying, at para. 29, that this interpretation “confines the reach of subsection 8(2) to conduct – deliberate falsehoods – that undeniably undermines the assertion of good character.” It went on to conclude, at para. 30: “Since the hearing panel found that Mr. Stewart’s alleged misrepresentations were not deliberate, it was correct in not applying s. 8(2) so as to automatically disqualify Mr. Stewart from admission.”
[35] In short, when the LSO seeks to cancel a candidate’s registration due to a false or misleading representation after they have completed their exams, the LSO has effectively refused to licence them due to concerns about their good character. As such s.27(4) of the Act requires a hearing.
[36] The conclusion that a hearing would be required is consistent with the general principles of procedural fairness stated in Khan v. University of Ottawa (1997), 1997 CanLII 941 (ON CA), 34 O.R. (3d) 535 (C.A.). The Court of Appeal found that a student had been denied procedural fairness with respect to her appeal from a failing grade on a law school exam. Although many academic appeals would not require an oral hearing, what distinguished this case was that the central issue related to the student’s honesty about whether she had completed an additional exam booklet. The court concluded that the examinations committee should not have judged her credibility adversely without affording her an in-person hearing.
[37] Similarly, the Applicants were entitled to a hearing if the LSO intended to impose punitive consequences such as voiding their registration and imposing what it termed a “regulatory sanction”. This could only be done after a finding of advertent misconduct.
[38] The LSO submits that it was not required to hold a hearing because of s. 1(3) of the Act, which provides that a hearing is not required before making any decision unless the Act, regulations or by-laws specifically require a hearing. We agree that the LSO would not have been required to hold a hearing if it had limited its response to non-punitive consequences, such as voiding the exam and allowing the Applicants to re-write it at the next opportunity. However, the LSO was not entitled to void the Applicants’ registration and treat the consequence as a regulatory sanction without a finding of fault and a hearing held pursuant to s. 27(4) of the Act.
[39] The LSO also maintains that it was entitled to take the steps it did to ensure the integrity of the licensing process and pursuant to its duty to protect the public interest. There is no dispute that the LSO has a duty to protect the public interest, as set out in s. 4.2(3) of the Act. We also agree it was important for the LSO to ensure the integrity of the examination process. To that extent, it was reasonable, as set out above, for the LSO to void the exam results and require the Applicants to rewrite.
[40] We conclude that before voiding the Applicants’ registration, which included voiding the successful completion of exams that had not been compromised and experiential learning and any exemption from that requirement, the Act required the LSO to hold a hearing. The LSO was permitted to void the compromised examination results, with an associated opportunity to rewrite the exam, without the need for a hearing. . Covant v. College of Veterinarians of Ontario
In Covant v. College of Veterinarians of Ontario (Ont CA, 2023) the Court of Appeal considered (with leave) a further appeal from a s.35 Veterinarians Act Divisional Court appeal, which was in turn an appeal from a College of Veterinarians of Ontario (CVO) Discipline Committee's order that the appellant had "engaged in professional misconduct by re-selling large quantities of veterinary drugs to human pharmacies, contrary to a newly amended regulation".
Here, the court reviewed the standard of review for professional disciplinary penalties:[26] The standard of review for the penalty imposed by the Committee is that of being clearly unreasonable, demonstrably unfit, or representing a substantial and marked departure: see College of Physicians and Surgeons of Ontario v. Peirovy, 2018 ONCA 420, 143 O.R. (3d) 596, at paras. 56-57; Mitelman v. College of Veterinarians of Ontario, 2020 ONSC 6171 (Div. Ct.), at para. 41.
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